Should one calculate ATR based on the back-adjusted series?

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Should one calculate ATR based on the back-adjusted series?

Post by fc » Thu Mar 01, 2012 9:23 am

One should calculate ATR based on the back-adjusted time series of futures prices, as opposed to the normal "stitched" time series, right?

It certainly seems that way, since using the "stitched" series would introduce artificial volatility into the ATR. It would be nice if someone could confirm this.

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Post by SimJimons » Thu Mar 01, 2012 9:53 am

Yes, unless you want to introduce artificial volatility :D
Last edited by SimJimons on Fri Mar 02, 2012 3:24 am, edited 1 time in total.

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Post by Eventhorizon » Thu Mar 01, 2012 11:36 am

Depends how you did your back-adjustment.

If you used a Panama approach (i.e. adjusting each contract up or down by addition) ATR is same for the actual and back adjusted series:

Adjusted Price = Actual Price + delta => adjusted ATR = Actual ATR

If you used a ratio approach, to get the traditional ATR you would have to back out the ratio, or work with a %-ATR instead:

Adjusted Price = Actual Price x Ratio => adjusted ATR = Ratio x Actual ATR

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